File name: 12 Harshit Kumar Pandey Setco Automotive Ltd

CREDIT APPLICATION

Section and Group reference:12 Name: Harshit Kumar Pandey

Company
Setco automotive Limited, 2A film center building, Ground Floor 68,
Name &
Taredo Road, Mumbai 400034, Maharashtra India
Address
The companys existing business operations are concentrated on
Activities, % manufacturing and marketing of auto-ancillary products (Especially
profit clutches). It is engaged in manufacturing of clutches for major Automobile
contributed players Mahindra and Mahindra; Ashoka Leyland
OEM-31%|OES & IAM-62%|International Market-7%

Promoters & Associates 59.88% | Public Institutions-2.01% |Public Non-

Ownership / Institutions-34.45%
Group / Key Chairman & MD Harish Seth | CEO Mr. Jatinder S Gujral| Director
directors Ashok Kumar jha (Retd. IAS) | Director Suhasini Sathe | Director
Shvetal Vakil

Short-term: A3
External
I-Risk Rating CY: A PY: NA Long-term: BBB
Rating
By CARE

Proposed Arrangement/share (%) Sole/20% of non-fund business

Facility Limits Proposed Remarks (pricing, tenure, validity, purpose)
(In Rs.lakh)
Bill purchase 1920.151964 High days receivable, to fund Working capital
@ base rate + 1.5%
Total FB 1920.15196.4
Letter of credit 1521.48979 Based on Total imports of Raw material i.e. 76
crores which majorly includes steel
Total NFB 1521.48979
Forex Instruments because of the exports
Treasury 460.00000
worth 23.84 crores at 3% premium
CMS Line intraday 0 *Not traded much i.e., trading volumes are low
Total Exposure(TE) 390164175 TE as % Bank 3.55%
excld CMS Capital Funds
Cross Sell Business Value Likelihood of shifting to our
(Rs lakh) bank
CMS 1035.60296.3 Low as the banks also provide
services the foreign
subsidiaries and have an
extensive network
Salary Acs 4071.06940 High as Bank is located near
the headquarters and the
plant at Gujarat
Account Net Interest Non Int. Income RAROC %
Profitability Income Rs. Rs.
Account - expected 50.95257.312 25.89007.408 22.33%
 File name: 12 Harshit Kumar Pandey Setco Automotive Ltd

Current Borrowing Arrangements (as seen from Balance Sheet)

Working Capital Banks Limit Outstandings

FB NFB Total FB NFB Total
State Bank of India NA NA NA NA NA NA
Term Lenders

State Bank of India - NA

Security Proposed
(nature, seniority, value, expected time for creation)
Primary Secured by hypothecation of Company's raw materials stock, stock-in-process
and finished goods at margin of 30% all other current assets including goods
in transit governed by documents of title at a margin of 20%.

Collateral First Pari Passu Charge by way of mortgage on all the fixed property and
hypothecation of all fixed assets of the Company at the plants Unit I & Unit II
at kohlai Gujarat and Sitarganj Uttarakhand

Guarantees personal guarantee of directors namely Mr. Harish Seth and Mr. Ashok Kumar
Jha
File name: 12 Harshit Kumar Pandey Setco Automotive Ltd

Performance/Financial Indicators LA - 2 LA - 1 Last Audited Projections

Net Sales 34935.71453 48643.79395 50514.88790 55962.09507
PBDIT 6461.02506 9320.00092 8640.89607 8418.86648
PAT 2937.48993 5121.20099 319.25706 3918.44990
Tangible Net Worth 18656.85840 20079.23590 22134.82118 22134.82118
Net Working Capital -1624.06504 2043.05981 -1331.16818 -3741.33592
Net Cash From Opns 12987.03687 5262.48340 6008.69874
Capital Expenditure 2376.68848 1890.73801 1786.37218
NCFO/Repayment obligations 0.12 0.32 0.24
Contingent Liability 0 0 0 0
- of which (Disputed) 0 0 0 0
Growth in Net sales (%) 39% 4% 11%
PBDIT as a % of Sales 18% 19% 17% 15%
TOL/TNW 1.22 1.39 1.61 1.76
(TOL + Contingent Liability)/ TNW 1.22 1.39 1.61 1.76
Current Ratio 0.92 1.11 0.95 0.89
Interest Coverage 2.68 3.41 2.30 2.62
Bank Borrowing for WCap 12339.18425 12077.32732 14266.66130 1580.508815
MPBF 7633.04523 10964.10772 9938.70929 10775.76182
Exports
Imports of RM and Spares etc.
Foreign Currency loans (if any)
Space for comments on financial trends seen above
The Net Sales has been increasing at a rate of more than 10% except the most recent year because
of the slowdown in the global markets and the decrease in sales of the foreign subsidiaries
The net cash flow from operations has been increasing but there is a decrease in the
NCFO/obligations in the projected statements.
The Current ratio is below 1 in almost all years but it has gone below 0.9 in our projections this may be
because the cash balance was used as a balancing entry but a covenant should be put to maintain it
over 0.9
The companys capital expenditure is decreasing thus the company is focusing on increasing its current
Position
The TOL/TNW is also increasing continuously thus no more debt shuld be taken by company until its
performance improves
 File name: 12 Harshit Kumar Pandey Setco Automotive Ltd

Constituent Analysis

Peer Ratios Company Ind. Average

Comparison NPM 6.31% 6.53%
(Ind. Best and EBITDA 17.1% 9.01%
Ind. Average) Debt to Equity 0.15 1.86
Inventory Turnover 2.9 5.174
ICR 2.62 244.361

Peer The company is better than its peers although it has a slightly lower
Comparison NPM and inventory turnover
Your Comments The Companys recent financials are better than the average industry
data.
The Company has a lower interest coverage ratio than industry
average and a lower NPM. This is explained by the fact that the
company took a large debt for capex expansion in 2011 and for
redeeming Capacity expansion
The companys debt to equity is also lower than the industry average

Capital Market: NSE: Current Market Price INR 38.00 |

Data 52-week H/L 37.70 | 39.00
Market capitalization v/s paid-up 5.23 (Bn)/0.267(Bn) |
P/E v/s industry P/E 15.24/28.42

Capital Market: Investors are optimistic about the growth of this sector because of the
Your Comments push by government and a positive overall growth in the economy
 File name: 12 Harshit Kumar Pandey Setco Automotive Ltd

Key Risks & Mitigants

Business & The Indian automotive industry is greatly dependent on the overall
Industry economic growth and has been on the uptrend. Moreover, with India
Risks coming up as a manufacturing and export hub, the demand is
expected to rise considerable going forward.
Industry has a fragmented structure. Although the number of
unorganized player is very high, they account for only little of the total
revenue. Dominated by large organized and foreign players, high threat
from Chinese imports
Initiatives such as Make in India, Skill India, GST are expected to be a
positive for the industry. Automatic approval for 100 per cent foreign
equity investment in auto component manufacturing facilities and
automotive mission plan aims to increase production by 4-fold by 2024
There are many steel and aluminum manufacturers (key raw material),
subject to some variations in commodity prices though
Competitive pressure- mitigated by regular improvements in products
and manufacturing processes
Pricing guidelines in domestic market- focused on OEM contracts and
domestic trends
Thus, there is Moderate Business Risk
Financial Risks Exchange rate fluctuations- hedged through forex contracts
Funding Risk- High since they have BBB rating for long term debt
Market risks- The Product portfolio of the company is concentrated on
the Clutches and if other significant player comes to the market the
risk on the company would increase significantly
Credit Risk- Moderate since the debt service ratio is below 1 but other
Ratio such as ICR are under acceptable limits.
Thus, there is Moderate Financial Risk
Management The management of the company is composed of 9 members of which 5
Risks are Independent this helps to have a diversity of opinions
The Companys board has many members having experience from
diverse industry
The MD and executive director are from the same family and have the
major shareholding in the company
The company has not been proactive since it has only adopted to
changes occurring in the market
Thus the company has Low-Moderate Risk
Take-Out Improving NCFO with steadily increasing gross margin (high ICR, low
Primary D/E ratio and improving current ratio) is the primary takeout.

Secondary --

Covenants Current ratio should not fall below 0.9

DSCR falling below 0.75
Total debt-equity gearing exceeding 0.60
Profit margin dropping below 4.00%
Net loss in three continuous quarters
External rating of the company falling below BB
Default by the borrower or its promoters or guarantor with the Bank or
other lenders
Withdrawal of any fiscal benefit tagged to the pricing of the credit
Shareholding of key promoter / stronger promoter dropping below 50%
 File name: 12 Harshit Kumar Pandey Setco Automotive Ltd

LC devolvement / discounted bills overdue on more than 4 occasions

Events of Failure to pay interest within 30 days of the Payment with interest on
default that amount
Insolvency of borrower
Material adverse change in borrowers business like a founder
promoter selling out partially/fully
Failure to maintain TOL/TNW at or below 2
Failure to maintain Current Ratio at or above 1
Default by other borrowers
Failure to maintain ICR at or above 2.0
Certification I have followed all the policy guidelines given by Reserve bank and
our bank.

Harshit Kumar Pandey

Signature of
Student